A huge increase in the number of unregulated private military and security companies operating in Iraq and Afghanistan is driving concern about the lack of regulation and constraints on their activities.

There are three British private security guards to every British soldier in Iraq, the charity War on Want said yesterday. At least 181 private military and security companies are operating in the country, employing almost 21,000 British private security guards, nearly half of the total number - an estimated 48,000.

Foreign contracts by British private security firms are now worth about £1bn a year, according to the companies.

The extent of their activities, and the way governments are either indulging or ignoring them, were highlighted at a conference in London in which the companies admitted that what has become known as the largest private army in the world had a serious image problem.

However, there is a lack of reliable information about the companies' activities. Speakers at the conference of the British Association of Private Security Companies claimed that what they described as the "Iraqi bubble" had burst and there may now be only 10,000 private guards in Iraq.

Andrew Bearpark, the association's director general, said the number of private security company employees killed in Iraq was a "quite staggering" 827, and added that the figure could be an underestimate.

Aegis and Control Risks are among British companies whose employees have been killed in Iraq. The British military reported yesterday that a roadside bomb killed three people travelling in a private security company convoy near Basra.

Mr Bearpark, a former chief of staff to Lady Thatcher, said the activities of private security companies had increased tenfold since the 1991 Gulf war. He insisted that the companies believed in regulation but the UK government had not come up with any proposal since a green paper on the issue four years ago. In the meantime, he said, the companies would appoint an independent ombudsman to investigate claims of abuse by employees.

The government admits that private security companies are here to stay, and that their operations are likely to increase further as pressures on the armed forces increase. Yet it is keeping the companies at arm's length, apparently concerned about dealing with "mercenaries". The companies, meanwhile, are desperate to shake off what they insist is an outdated and misleading moniker. Their tasks, they say, range from protecting individuals and convoys to "post-conflict reconstruction".

Critics say the main problem is that they are unaccountable. Non-Iraqi employees of private security companies in Iraq were protected from prosecution under Order 17 of the Coalition Provisional Authority, issued shortly before it handed over power in 2004.

War on Want said yesterday that civilian contractors - including men named in US military reports as having carried out abuses at Iraq's Abu Ghraib prison - have repeatedly escaped prosecution. The charity pointed to a report by US army general Antonio Taguba which stated that two workers employed by private defence companies CACI International Inc and Titan Corp were "either directly or indirectly responsible for the abuses at Abu Ghraib".

The charity also cited a video distributed on the internet which purported to show Aegis contractors firing at Iraqi civilian vehicles, to a soundtrack of Elvis Presley's song Mystery Train. A US military investigation cleared Aegis of any offence.

Geoffrey Dennis, chief executive of the humanitarian agency Care International UK, expressed concerns that in Afghanistan and Iraq the lines between security and aid were being blurred.

"When the military and private security companies get involved in so-called 'quick-impact projects', they are frequently ineffective, inappropriate, and short-termist," he said. "This is because they are based on a different agenda - either political or military - rather than on the need for sustainable reconstruction."

Hired guns

British private security companies have contracts in Iraq and Afghanistan worth £1bn. There are 48,000 employees of private security firms in Iraq - 21,000 of them British - according to War on Want. The total has now dropped to 10,000,British companies say. Aegis, which won a multimillion pound contract from the Pentagon to provide security in Iraq, saw its turnover increase from £500,000 in 2003 to £62m last year. ArmorGroup, a British company, trebled its turnover from £37m in 2001 to £122m. In Afghanistan, 150 employees of the US company DynCorp are protecting president Hamid Karzai. Blackwater has won contracts in Iraq and to combat opium cultivation in Afghanistan. Control Risks has contracts with UK and US agencies, including the Foreign Office, to provide security in Iraq.